In re Rembrandt Technologies LP Patent Litigation, 072718 FEDFED, 2017-1784

Docket Nº:2017-1784
Opinion Judge:O'MALLEY, CIRCUIT JUDGE
Party Name:IN RE: REMBRANDT TECHNOLOGIES LP PATENT LITIGATION v. COMCAST OF FLORIDA/PENNSYLVANIA, LP, ADELPHIA CONSOLIDATION LLC, MOTOROLA, INC., CISCO SYSTEMS, INC., COMCAST OF PENNSYLVANIA II, LP, CENTURY-TCI CALIFORNIA COMMUNICATIONS, LP, CENTURY-TCI HOLDINGS, LLC, PARNASSOS COMMUNICATIONS, LP, CSC HOLDINGS, INC., TIME WARNER CABLE LLC, TIME WARNER CAB...
Attorney:Thomas Goldstein, Goldstein & Russell, P.C., Be-thesda, MD, argued for plaintiffs-appellants. Also represented by Tejinder Singh. John C. O'Quinn, Kirkland & Ellis LLP, Washington, DC, argued for all defendants-appellees. Defendants-appellees Motorola, Inc., Cisco Systems, Inc., Scientific-Atlant...
Judge Panel:Before O'Malley, Mayer, and Reyna, Circuit Judges.
Case Date:July 27, 2018
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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IN RE: REMBRANDT TECHNOLOGIES LP PATENT LITIGATION

REMBRANDT TECHNOLOGIES, LP, REMBRANDT TECHNOLOGIES, LLC, DBA REMSTREAM, Plaintiffs-Appellants

v.

COMCAST OF FLORIDA/PENNSYLVANIA, LP, ADELPHIA CONSOLIDATION LLC, MOTOROLA, INC., CISCO SYSTEMS, INC., COMCAST OF PENNSYLVANIA II, LP, CENTURY-TCI CALIFORNIA COMMUNICATIONS, LP, CENTURY-TCI HOLDINGS, LLC, PARNASSOS COMMUNICATIONS, LP, CSC HOLDINGS, INC., TIME WARNER CABLE LLC, TIME WARNER CABLE ENTERPRISES LLC, COXCOM, INC., SCIENTIFIC-ATLANTA, INC., THOMSON, INC., NETGEAR, INC., CHARTER COMMUNICATIONS OPERATING LLC, CCO HOLDINGS LLC, ADELPHIA COMMUNICATIONS CORPORATION, PARNASSOS HOLDINGS, LLC, COMCAST CABLE COMMUNICATIONS, LLC, COMCAST CORPORATION, CABLEVISION SYSTEMS CORPORATION, AMBIT MICROSYSTEMS, INC., Defendants-Appellees

CENTURY-TCI DISTRIBUTION COMPANY, LLC, WESTERN NY CABLEVISION, LP, SHARP CORPORATION, SHARP ELECTRONICS CORP, CBS CORPORATION, NBC UNIVERSAL INC, CENTURY-TCI CALIFORNIA, LP, PARNASSOS DISTRIBUTION COMPANY I, LLC, PARNASSOS DISTRIBUTION COMPANY II, LLC, PARNASSOS, LP, ABC, INC, COMCAST CABLE COMMUNICATIONS HOLDINGS, INC, COMCAST OF PLANO, LP, FOX BROADCASTING COMPANY, FOX ENTERTAINMENT GROUP, INC. Defendants

No. 2017-1784

United States Court of Appeals, Federal Circuit

July 27, 2018

Public Opinion Issued: August 15, 2018 [*]

Appeal from the United States District Court for the District of Delaware in Nos. 1:06-cv-00635-GMS, 1:06-cv-00721-GMS, 1:06-cv-00727-GMS, 1:06-cv-00729-GMS, 1:06-cv-00730-GMS, 1:06-cv-00731-GMS, 1:07-cv-00396-GMS, 1:07-cv-00397-GMS, 1:07-cv-00398-GMS, 1:07-cv-00399-GMS, 1:07-cv-00400-GMS, 1:07-cv-00401-GMS, 1:07-cv-00402-GMS, 1:07-cv-00403-GMS, 1:07-cv-00404-GMS, 1:07-cv-00752-GMS, 1:07-md-01848-GMS, Judge Gregory M. Sleet.

Thomas Goldstein, Goldstein & Russell, P.C., Be-thesda, MD, argued for plaintiffs-appellants. Also represented by Tejinder Singh.

John C. O'Quinn, Kirkland & Ellis LLP, Washington, DC, argued for all defendants-appellees. Defendants-appellees Motorola, Inc., Cisco Systems, Inc., Scientific-Atlanta, Inc., Thomson, Inc., Ambit Microsystems, Inc., NETGEAR, Inc. also represented by Aaron Nielson, Jason M. Wilcox; Steven Cherny, New York, NY.

Brian Lee Ferrall, Keker, Van Nest & Peters LLP, San Francisco, CA, for defendants-appellees Comcast of Florida/Pennsylvania, LP, Comcast of Pennsylvania II, LP, Century-TCI California Communications, LP, Centu-ry-TCI Holdings, LLC, Parnassos Communications, LP, Parnassos Holdings, LLC, Comcast Cable Communications, LLC, Comcast Corporation. Also represented by Leo L. Lam.

Benjamin Hershkowitz, Gibson, Dunn & Crutcher LLP, New York, NY, for defendants-appellees CSC Holdings, Inc., Cablevision Systems Corporation. Also represented by Josh Krevitt, Robert Scott Roe.

Thomas Lee Duston, Marshall, Gerstein & Borun LLP, Chicago, IL, for defendants-appellees Time Warner Cable, LLC, Time Warner Cable Enterprises LLC, Charter Communications Operating LLC, CCO Holdings LLC. Also represented by Julianne M. Hartzell, Kevin David Hogg.

Michael Craig Harwood, Kasowitz Benson Torres LLP, New York, NY, for defendants-appellees Adelphia Communications Corporation, Adelphia Consolidation LLC.

Mitchell G. Stockwell, Kilpatrick Townsend & Stockton LLP, Atlanta, GA, for defendant-appellee Cox-Com, Inc. Also represented by Richard W. Goldstucker.

Before O'Malley, Mayer, and Reyna, Circuit Judges.

O'MALLEY, CIRCUIT JUDGE

This appeal derives from a multitude of patent infringement actions that plaintiffs-appellants Rembrandt Technologies, LLC and Rembrandt Technologies, L.P. (collectively, "Rembrandt") filed in the mid-2000s against dozens of cable companies, cable equipment manufacturers, and broadcast networks. The cases were consolidated in the District of Delaware. After several years of litigation, the district court entered final judgment against Rembrandt as to all claims.

Many of the defendants (collectively, "Appellees") thereafter filed a motion requesting attorney fees under 35 U.S.C. § 285. Nearly four years after the litigation ended, the district court issued a brief order granting that motion and declaring the case exceptional. In re Rembrandt Techs., LP Patent Litig., No. 1:07-md-01848-GMS (D. Del. Aug. 20, 2015), ECF No. 951 ("Exceptional Case Order"). The court then granted the bulk of Appellees' requests for fees, including nearly all of the attorney fees Appellees incurred in the litigation. In re Rembrandt Techs., LP Patent Litig., No. 1:07-md-01848-GMS (D. Del. Aug. 24, 2016), ECF No. 1013 ("First Fees Order"). In total, the court awarded Appellees more than $51 million in fees. In re Rembrandt Techs., LP Patent Litig., No. 1:07-md-01848-GMS (D. Del. Mar. 2, 2017), ECF No. 1044 ("Second Fees Order").

Rembrandt appeals both the district court's exceptional-case determination and its fee award. We conclude that the district court did not abuse its discretion in deeming this case exceptional, but that the court erred by failing to analyze fully the connection between the fees awarded and Rembrandt's misconduct. We thus affirm the district court's exceptional-case determination, vacate the district court's fee award, and remand for further proceedings.

I. Background

A. The Patents in Suit

The underlying litigation involves nine patents belonging to Rembrandt. Eight of them address cable modem technology-U.S. Patent Nos. 4, 937, 819 ("the '819 patent"), 5, 008, 903 ("the '903 patent"), 5, 710, 761 ("the '761 patent"), 5, 719, 858 ("the '858 patent"), 5, 778, 234 ("the '234 patent"), 5, 852, 631 ("the '631 patent"), 6, 131, 159 ("the '159 patent"), and 6, 950, 444 ("the '444 patent"). The ninth patent, U.S. Patent No. 5, 243, 627 ("the '627 patent"), involves over-the-air signals. Although the patented technology is not directly relevant here, the history of the patents and the documents associated with the technology bears heavily on the issues on appeal.

1. Rembrandt and Paradyne

Before Rembrandt obtained the patents at issue, they belonged to Paradyne Networks, Inc. ("Paradyne"), a former AT&T subsidiary that developed, manufactured, and distributed network access products. Three former Paradyne employees are relevant to this appeal: Gordon Bremer, the former director of Paradyne's technology department who managed its patent portfolio; Scott Horstemeyer, Paradyne's outside patent prosecution counsel; and Patrick Murphy, Paradyne's Chief Financial Officer.

In 2002, Paradyne decided that the expected value of the '819 and '858 patents did not justify paying their maintenance fees, and it therefore let the patents lapse. Horstemeyer and Bremer later testified that Paradyne incorrectly believed it could thereafter make belated payments of the maintenance fees to revive the patents if it so desired. The '819 and '858 patents lapsed in June and February 2002, respectively.

Following some third-party interest in acquiring the Paradyne patents, Bremer, Horstemeyer, and Murphy decided to petition the United States Patent and Trademark Office ("PTO") to revive the '819 and '858 patents. In connection with that request, they represented that "the delay in payment of the maintenance fee of this patent was unintentional." J.A. 141; see J.A. 150. Horstemeyer testified in these proceedings that he felt he could truthfully say that the failure to pay fees had been unintentional because of Paradyne's misunderstanding about the conditions for revival. Horstemeyer explained, however, that he did not offer this explanation to the PTO at the time because he did not want to deviate from the PTO form. The PTO granted the revival petitions.

In September 2004, Paradyne contacted Rembrandt to propose a joint "patent assertion team" to "exploit[] the Paradyne patents"-including the ones that Paradyne had revived. Appellees' Br. 8. In December 2004, Paradyne and Rembrandt executed a patent sale agreement that assigned six of the asserted patents (as well as several others not at issue here) to Rembrandt. The agreement also gave Rembrandt the right to access and copy relevant Paradyne documents. The companies amended their agreement in February 2005, adding the '819 patent to the portfolio of patents assigned to Rembrandt. Rembrandt's in-house counsel, John Meli, asked Paradyne in March 2005 to "save any material that relates to patents you sold to us or plan to sell to us, including product data that embodies the patented inventions." J.A. 203.

2. Rembrandt and Zhone

Paradyne was acquired in September 2005 by Zhone Technologies ("Zhone"), an equipment manufacturer. Thereafter, Zhone cut much of Paradyne's workforce and footprint.

Zhone also began to destroy Paradyne's documents, most of which were housed in a storage facility separate from Paradyne's offices. Zhone's general counsel, Paul Castor, testified that the purpose of the document...

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